Doing Business in China

Both Chinese and foreign companies will often attribute their business success to having good guanxi. But the obligations of guanxi are very real. In the wrong place, at an inappropriate time, with unsuitable people, the obligations can become a trap which is hard to escape.

Business negotiation:

- Business negotiation

Negotiation refers to an interaction process in which two or more parties aim to reach a mutually acceptable agreement on certain matters. They might have common interests or conflicting interests. Without common interests, there is nothing to negotiate for. Without conflicting issues there is nothing to negotiate about. Commercial negotiation is the process where parties come together to confer in a situation where there is some conflicting interest between them with an aim of coming up with a jointly acceptable agreeement

- Reasons to negotiate

-Creates win-win situations. The best negotiators are ones who are able to create win win situations, in which everyone walks out thinking that the deal is a good one. (social exchange theory) views human interactions and exchanges as a kind of results driven social behaviour. The fundamental concept of the theory of social exchange is cost and rewards. This means that cost and reward comparisons drive human decisions and behaviour.

-Good negotiating can improve your bottom line. The goal of negotiation is to get the best deal possible for you and your organization. In doing so, you are improving your bottom line. Eg: if you are able to reduce your OH by 10% due to an effective negotiation, that money goes straight to your profit margin.

-To build respect. Respect is an essential part of business. It is important that your vendors, clients, employees respect you if you want to get the most productivity out of them. It is far better to be a somewhat intimidating character due to your negotiating skills than it is to be looked at as a pushover at the negotiating table.

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(3)Characteristics of Chinese negotiation style

-Emphasis on interpersonal trust rather than the legal contract:

Business in China is not about doing business between organizations, but about doing business between people. In the west, relationships often grow out of business deals, whereas in China business deals usually grow out of relationships. Westerners are inclined to observe a clear dichotomy between professional and personal relationships, whereas the Chinese make no such distinction and rely on interpersonal contract to resolve business issues.

-General principles first:

Chinese negotiators tend to start negotiations on a few general principles fist, leaving specific details to a later stage. The general principles that Chinese negotiators propose often take the form of vaguely worded letters of intent, letters of interest or protocols setting out the intentions or long term interests of both parties

-The government behind the scenes

In the negotiating process, Chinese negotiators are often not in a position to take final decisions, and the power to take these rests in the hands of government officials behind the scenes. As foreign businessmen are normally unable to negotiate directly with the Chinese government, they have to negotiate with their Chinese business partner, who actually serves as an agent of the Chinese government.

-Having a large but indecisive negotiation team

Chinese negotiation teams are often very large in size, consisting of many officials from various departments. It is common that people from various government departments and commissions (planning,economic) are found sitting in the negotiation room. Your partners report not only to their corporate chiefs but also to the provincial government and the like. The Chinese must receive permits from the province.Apart form government officials, representatives from various departments of the Chinese company are often also invited to participate in the negotiating team in order to avoid possible”non-collaboration” in the future.

-Sudden changes from being stubborn to being flexible

When they feel that the general principles set by the top party leaders are being challenged, when they are faced with propositions on which they cannot make any compromises without asking for approval from senior leaders.Chinese negotiators may suddenly become flexible, however, when they have received approval from top party leaders, who either have realized that the demand on the Chinese side is though correct. Consequently, western negotiators often find that “higher Chinese officials can more readily make concessions while lower officials have to be more careful and hence appear to be stubborn

-Sensitivity to price

In the negotiating process they often keep bargaining for a lower price, and do so even at the expense of other aspects of the deal, such as the quality of the products and the time of delivery.

-Using tactics, tricks, ploys

Chinese negotiators often display a fascination for tactics that may be at the expense of any recognizable strategy. Some would classify this absorption with manipulation as the second most distinctive Chinese negotiating characteristic after their stress on agreement over general principles.

(3)Tips for negotiating with Chinese partners

Identify the meaning of a particular negotiating behaviour

-Adopt a people-oriented approach

Gain trust from Chinese negotiators, who will then treat you as an insider. Once you have establish a trusting friendship with Chinese negotiators, you will enjoy the “treatment of insiders” in comfort, and avoid being subjected to the numerous ploys and deceptions that can be used in the negotiation process.

-Set up an appropriate negotiating team

It is advisable for a foreign negotiation team to include a member of Chinese origin. Knowing Chinese culture intimately, the ethnic Chinese member will be far better placed to understand what a gesture may mean in the Chinese cultural context.